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Semel, Yahoo, and the bet on media

I have little to add to the flurry of coverage of Terry Semel’s departure (or should we say semi-departure) from Yahoo but this bit of historical perspective. (Apologies in advance for a certain amount of over-simplification! I’m writing today in between family events…)

Semel took over Yahoo during the worst of the dotcom downturn, an era largely forgotten in today’s Web 2.0 euphoria. His hiring there needs to be understood in parallel with the AOL/Time Warner saga. During the same time that Semel was retooling Yahoo in Hollywood’s direction, the Time Warner brass were conducting their counter-revolution against the AOL upstarts who’d seemed to have snookered their shareholders.

At that moment in industry history, everyone was making the same bet: the Web as a technology platform was a money-loser. Cash was king. You had to charge for services if you could, and keep selling ads if you could; if you could do either, you’d be OK, and if you could do both, you could prosper. The future, in other words, lay with those who bet on media, not on technology.

For Yahoo, born of the Web, the choice was tougher: Yahoo’s was always an ad business, but the company was justly proud of its technology, too. Semel’s background and focus sent the message that the Web was calming down into an online version of broadcast: gather eyeballs and sell them. That worked, up to a point; Semel did help rescue Yahoo from the bubble-bust, and the company survived to become one of the industry’s leaders.

On the other hand, it also missed the boat on the biggest change that was incubating throughout that era. Google’s extraordinary new business was entirely technology-based. The bet Semel failed to make on the technology side proved to be the one that mattered most. And the smart but relatively small moves Yahoo would later make to try to catch up — investments in Flickr and so on — couldn’t make up for that big miscall.

The boom-bust cycle that governs the Net world enforces a short-term amnesia: When a bubble is on, everyone thinks technology is all that matters, and when a bust is on, everyone thinks cash is all that matters. As in any market, the best returns are captured by those who make smart (and smartly timed) counter-cyclic bets.

To this outsider, Semel doesn’t appear to have been the Hollywood idiot some now see. But he steered Yahoo with the cycle. And that just wasn’t unconventional enough to produce the biggest sort of win.
[tags]yahoo, terry semel, web industry[/tags]

Comments

No, no, no, no! Google is the premier MEDIA company in the world. They are not a technology company. They do not sell technology to anyone (well maybe their little search servers, but those are deminimus to the conversation)! Google sells advertising; or more accurately, Google brokers advertising between the global audience and web sites. That’s a media model, not a technology model. The fact that they happen to have one of the best designed and most automated processing systems is good, but that’s not their business. It enables their MEDIA business model.
Technology companies sell technology to other companies.
What did Yahoo! screw up? They focused on creating content more than being just an excellent, pure broker like Google. Google doesn’t create content (well, they didn’t, but now they’re going more towards Yahoo!’s direction with the advent of Google Finance), they just are a very highly automated brokering system that connects the content creators and the audience.
That’s it.
They don’t make jack from any of their other activities outside of advertising.

Google’s business model is “media” in the sense that it makes money as a middle-man, by selling ads, yes, of course. But the company does not create what anyone in “old media” would recognize as a media product; its only product is the technology that organizes search results and ads on those search results. (Plus it’s begun to be a software provider as well. It’s just supporting that software via advertising, not by selling licenses.)

Brin and Page did not wake up one day and think, “Let’s start a media company and sell ads.” Famously, they declared, “Let’s organize the world’s information,” and they wrote code to do so. The business model came along a lot later — right about the time Semel was taking over Yahoo, in fact. The driving force at the company was and remains technological problem-solving: an approach to Web business that, in 2001, was considered hopelessly naive.